Lagarde comments at ECB press conference

FRANKFURT, March 16 (Reuters) - The European Central Bank raised its three policy rates by 50 basis points on Thursday, sticking to its inflation fight despite turmoil in financial markets that has raised fears about a global banking crisis.

Following are highlights of ECB President Christine Lagarde's comments at a news conference after the policy meeting.

EUROPEAN BANKING RESILIENT

ECB vice president Luis de Guindos: "The banks are resilient, high capital ratios, robust liquidity buffers, limited exposure to the institutions of the U.S. in that case, and simultaneously that the overall assessment was quite clear - that the banking industry in Europe is resilient."

NO TRADE-OFF

"There is no trade-off between price stability and financial stability. And I think that if anything, with this decision, we are demonstrating this."

NO LIQUIDITY CRISIS

"(ECB staff) have demonstrated in the past that they can also exercise creativity in very short order in case it is needed to respond to what would be a liquidity crisis if there was such a thing. But this is not what we are seeing."

BANKS IN 2008 VS TODAY

"I was around in 2008, so I have clear recollection of what happened and what we had to do, we did reform the framework, we did agree on Basel III. We did increase the capital ratio, we did increase the financial coverage ratio as well. And I think that the banking sector is currently in a much, much stronger position than where it was back in 2008."

THREE-PART REACTION FUNCTION

"Number one, the assessment of the inflation outlook in light of the incoming economic and financial data; number two, the dynamics of underlying inflation; and number three, the strength of our monetary policy transmission. So that's brand new."

POLICY DECISION

"The Executive Board proposed that option which is described in the monetary policy statement and that no other option was proposed.

"I can also tell you that the decision was adopted by a very large majority with three or four that did not support the decision - not in its principle because they were ready to go for that but they were keen to probably give a bit more time to see how the situation unfolds and what additional data we can collect."

CAVEAT TO BASELINE FORECASTS

"But it's a big caveat, 'if our baseline was to persist'. As you know, our baseline as determined by staff are based on data and assessment of the situation with a cutoff date, and that was Feb. 15 for the international outlook and technical assumptions and March 1 for the euro area macroeconomic projections...

"The projections that we have do not incorporate any of the most recent developments and certainly not the impact of the most recent financial tensions that we have observed on the markets. So there is a level of uncertainty that has been completely elevated because of that (and) that is the reason why we reinforce the principle of data-dependency."

DATA-DEPENDENT APPROACH

"The elevated level of uncertainty reinforces the importance of a data-dependent approach to our policy rate decisions, which will be determined by our assessment of the inflation outlook in light of the incoming economic and financial data, the dynamics of underlying inflation, and the strength of monetary policy transmission."

FIGHTING INFLATION

"We are not waning on our commitment to fight inflation and we are determined to return inflation back to 2% in the medium term - that should not be doubted. The determination is intact. The pace that we take will be entirely data-dependent."

UPSIDE INFLATION RISKS

"The upside risks to inflation include existing pipeline pressures that could still send retail prices even higher than expected in the near term."

UNDERLYING PRICE PRESSURES

"Underlying price pressures remain strong."

DOWNSIDE RISKS TO GROWTH

"The outlook for economic growth is tilted to the downside.

"Persistently elevated market tensions could tighten broader credit conditions more strongly than expected and dampen confidence.

"Russia's unjustified war against Ukraine and its people continues to be a significant downside risk to the economy and could again push up the cost of energy and food."

STRONG LABOUR MARKET

"Rising wages and falling energy prices will partly offset the loss of purchasing power that many households are experiencing as a result of high inflation. This, in turn, will support consumer spending. Moreover, the labour market remains strong despite the weakening of economic activity."

ECONOMY SET TO RECOVER

"The economy looks set to recover over the coming quarters. Industrial production should pick up as supply conditions improve further, confidence continues to recover and firms work off large order backlogs."

MONITORING MARKET TENSIONS

"We are monitoring current market tensions closely and stand ready to respond as necessary to preserve price stability and financial stability in the euro area.

"In any case we stand ready to adjust all of our instruments within our mandate to ensure that inflation returns to our medium-term target and to preserve the smooth functioning of monetary policy transmission."

(Reuters Global News Desk)